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Fighting Chronic Problems in Europe’s Youth Labour Markets

October 17th, 2012

In the session “Tackling Youth Unemployment“ at the Global Economic Symposium (GES) in Rio de Janeiro Professor Juan Dolado, University Carlos III de Madrid, one of most highly regarded labour market economists in the world, presented evidence towards solutions involving vocational education, appren¬ticeships and work contracts.

According to his results, European countries with strong apprenticeship systems and/or low-regulated labour markets—notably, Denmark, the Netherlands and the UK—have the lowest rates of unemployment and lowest rates of young people (16–24 year olds) who are NEETs—‘not in employment, education or training’. For European countries with highly regulated labour markets, it is very important to have strong vocational education and training systems to compensate for these rigidities—for example, Austria, Germany and Switzerland. In general, there is a negative correlation between the percentage of students enrolled in vocational training in upper secondary education and school dropout rates in the EU-15 countries. This suggests that facilitating ‘early tracking’ of students under compulsory education towards vocational training is successful in reducing the proportion of school dropouts. ‘Dual vocational training’—a system that combines apprenticeships in firms and formal education at vocational school simultaneously—is very effective. Switzerland, the European country with the lowest youth unemployment rate, has 60 percent of post-compulsory school students enrolled in dual vocational; the equivalent figure for Spain is 2 percent.

Southern European countries with a high incidence of temporary work—notably, Greece, Italy, Portugal and Spain—have the largest shares of at-risk youth. The larger the gap in employment protection between permanent and temporary contracts is, the less likely that the temporary jobs become stepping-stones rather than dead-end jobs. Under the current highly segmented system, the steep increase in severance pay at the termination of temporary contracts implies a situation in which most employers prefer to rotate workers in a sequence of fixed-term contracts rather than to upgrade them to a permanent contract. Replacing most temporary contracts by a single-open ended contract—with the level of employment protection increasing gradually over time rather than in a steep way—would eliminate the incentive for this wasteful rotation.

At the end of the session, each panellist gave their best ‘killer idea’:

The Austrian ‘youth guarantee’, where the government guarantees that every young person without a job for four months will have either a job or participate in a vocational training programme. The cost of that programme is not too high.

What Manpower did in Shanghai in cooperation with the local government: they surveyed firms extensively on the types of workers and sets of skills they need and then used that information to steer young people in training and education. This indicates the importance of dealing with the mismatch between the skills demanded and skills supplied.

The need to introduce graded job security in the labour market and avoid an abrupt jump from a temporary contract to a permanent one.

The need to divide unemployed young people into two categories: educated and uneducated ones. Different policies are needed for the two groups.

There is no one single best solution and governments have to use many inte-grated and coordinated policies to deal with the problem.

“The Global Economic Symposium (GES) 2012 is being jointly organized by the Kiel Institute for the World Economy (IfW) and the Bertelsmann Stiftung, in cooperation with the German National Library of Economics – Leibniz Information Centre for Economics (ZBW) and in collaboration with the Fundação Getulio Vargas (FGV).